US Reshoring is Gaining Manufacturing Executive Approval
Encouraging news emerged out of the manufacturing sector last week as AlixPartners published the results of a survey they carried out with various manufacturing executives. Although the results are far from a home run for the sector as it stands today, certain trends do indicate that executives are warming up to the notion of bolstering manufacturing in America over time.
AlixPartners asked the representatives of the survey to answer various questions about their perceptions of nearshoring their labor. Nearshoring, or reshoring, in its simplest terms, involves shifting operations back to North and South America from elsewhere, most notably from China and the eastern Asian region. A major jump occurred from this year when respondents were asked if the decision to reshore is very important or somewhat important, from 53% last year to 84% in 2013. On a related note, every participant said the importance of decisions regarding nearshoring are the same, or higher than last year.
However, in terms of being the most “attractive” location to relocate, America has been outranked considerably by Mexico in recent years. According to the AlixPartners poll results in 2011, the favor gap at that point was 63% Mexico versus 19% US. In 2013, however, the gap has been entirely erased – both countries represent 37% favorability.
Steve Maurer, managing director at AlixPartners, agrees that the largest factor in the renewed interest towards American reshoring is cost effectiveness:
The US is definitely a more cost-competitive source for manufacturing today that it has been in many, many years. In fact, the cost gap with China has on average been closed by approximately 70% for the products we analyzed. However some consultants have taken that fact and tried to apply it with a broad brush across all of their clients and all of their clients’ products. As our analytical and product-specific research shows, that could be a big mistake.
As Maurer alluded, there are many industries listed in the report that shouldn’t immediately consider reshoring. Operating costs for machined aluminum parts, plastic molding components, non-denim clothing, and knit apparel have steadily risen in overseas markets for the last ten-to-fifteen years, but forecasts in the study affirm they should remain economically sound without leaving, at least through the end of 2015.
Other factors, highlighted by The Strategic Sourceror, have played an additional role in the reshoring discussion. Advanced computer equipment has made cyber theft in China a challenge. Hackers possess more powerful equipment than ever to steal private information without being traced. According to a recent ZDNet article, one hardware concern stems from more companies going with solid-state drives (SSDs) instead of older drives in their computers, which actually were more effective at retaining information after multiple deletions. IP address theft is also a common concern noted by ZDNet. As a whole, a separate survey by the American Chamber of Commerce in China determined that a quarter of all American businesses working in the region have experienced some variation of data theft. America’s stronger intellectual property laws are certainly a benefit in this regard.
Political concerns are also a means of contention in the region. Recent statements and actions by North Korean leader Kim Jong Un have heightened the awareness of political leaders, especially in the last couple months. It’s unclear how China, often a political ally of North Korea, will be affected moving forward, but the unrest is noteworthy when contemplating nearshoring initiatives.